The Health Policy Conundrum (L13)

Question 1

Problems that rise in health care service markets

Answer 1

1. oligopoly pricing
2. monopoly rents for doctors and specialists
3. medical arms race

Question 2

Problems that arise in health insurance markets

Answer 2

1. adverse selection and underinsurance

2. moral hazard and technology overuse

Question 3

Arrow’s Impossibility Theorem

Answer 3

The task of designing a national health system is an optimization problem - societies must decide how much time and money they want to spend on health vs. other competing priorities. However, a society is different from individuals - individuals are presumed to have consistent and transitive preferences, but society does not. So it does not make sense to speak of an “optimal” health policy.

Question 4

The health policy trilemma

Answer 4

Nations have three broad goals in mind when designing health policy - there is a tradeoff between these three: health, wealth, equity.

Question 5

the Beveridge Model (description)

Answer 5

• single-payer insurance (eliminates adverse selection and promotes equity)
• public provision of health care (physicians are government employees, this controls costs)
• very little cost sharing at point of service
• emphasis on equity

Question 6

the Beveridge model (tradeoffs)

Answer 6

1. queuing (way to ration care with little cost sharing)
2. lack of competition (new providers cannot enter the market freely)
3. lack of hospital autonomy (important for efficiency, ability to adapt to local conditions)

Question 7

The Bismarck Model (description)

Answer 7

• compulsory private insurance (no adverse selection, rich subsidize poor and healthy subsidize sick)
• private hospitals and doctors
• strict price controls set by government (sometimes in negotiation with doctors and hospitals)
• balances equity and liberty

Question 8

The Bismarck Model (tradeoffs)

Answer 8

1. higher costs (but not as high as US)

2. restrictions on consumer choice and product differentiation

Question 9

American model of health insurance

Answer 9

• private markets in central role
• no mandate for universal insurance
• no price controls
• public insurance for select groups (elderly and poor)
• emphasis on liberty